“It’s the third time this year your lender has ‘updated’ their DSCR requirement – and the new number turns your refinance from green light to yellow.”
That scenario feels all too familiar for many hotel owners heading into the back half of 2025. Demand is steady enough, but profits are being squeezed, and lenders are getting more selective by the quarter. The combination is creating a landscape where operational discipline and forward-looking financial strategy are no longer optional—they’re essential for survival.
The State of the Industry: Wall Street’s View
From the outside, hotel performance appears stable. But peel back the layers, and the numbers tell a tougher story. Inflation-adjusted RevPAR is still 9–10% below 2016 levels, while both ADR and occupancy are softening across most major REITs. Even top-tier public operators are reporting margin compression, signaling that independent and mid-market owners are likely to face an even steeper climb.
On the cost side, labor, insurance, and property taxes remain stubbornly high despite easing headline inflation. On the demand side, domestic leisure has stabilized, but international inbound and group travel remain sluggish, creating a two-speed market where regional drive-to hotels outperform urban upper-upscale assets. Investors watching the Distressed Hotel for sale and Hotels for Sale in Arizona trends see these demand shifts influencing opportunities.
The Capital Climate: Main Street’s Reality
If Wall Street is flashing yellow, Main Street is seeing red flags. According to BankRegData Q2 2025, commercial real estate loans on bank books are down nearly 3% year-over-year—the sharpest pullback among regional and mid-tier banks, which are the backbone lenders for many hotel owners.
At the same time, non-performing CRE loans are ticking up, pushing banks to tighten coverage requirements and reduce leverage. While large institutions and private debt funds remain active, they often impose stricter terms and slower approval processes. Owners are increasingly reporting last-minute covenant changes, extended timelines, and higher DSCR hurdles—even for assets with consistent performance, making advice from a commercial real estate broker more critical.
The Squeeze from Both Ends
For hotel owners, the pressure is coming from three directions at once:
- Revenue side: Flat ADR and occupancy, combined with inflation, means real revenues are underperforming.
- Expense side: Operating costs—from wages to insurance—are growing faster than revenue.
- Capital side: Refinancing and acquisitions are constrained by lenders who are demanding more while offering less.
The result? A narrowing margin of error. Owners who don’t take proactive steps risk being caught in a refinancing crunch or forced into unfavorable capital structures. Next, we’ll explore the steps they can take to get ahead of these challenges.
Owner Playbook for Q3/Q4 2025
With challenges mounting, the most resilient operators are leaning into a proactive, defensive strategy. Key moves include:
- Defend Your Rate Floor: Avoid broad discounting that erodes ADR. Instead, use targeted packages, loyalty perks, and direct booking incentives to protect rate integrity.
- Pre-Shop Capital: Begin lender conversations 12–18 months before maturity. Focus on banks still expanding CRE portfolios and compare terms aggressively.
- Stress-Test DSCR: Run conservative models assuming flat ADR and current expense levels to ensure you’ll meet higher coverage ratios under today’s interest rates.
- Control Cost Surprises: Start insurance renewals early, explore group purchasing programs, and lock in vendor contracts before rates rise again.
- Target Stable Demand: Double down on resilient segments, especially domestic leisure and regional drive-to travel. Adjust marketing strategies accordingly.
Late-2025 Outlook: Tailwinds vs. Headwinds
The outlook is not without its bright spots. Low new supply provides a cushion against oversaturation. A potential Fed rate cut later this year could ease financing costs. Brands are offering key money incentives to drive conversions, and domestic leisure demand continues to anchor in the market.
Yet, the headwinds remain strong: persistently high labor and insurance costs, financially stretched consumers, weak inbound international traffic, and a credit environment where lenders remain cautious. In this market, many owners are turning to a Hotel Broker for guidance.
Closing Thoughts
Hotel demand is holding steady, but margins are razor thin and capital is increasingly selective. Owners who treat 2025 as a waiting game risk falling behind. The operators who will emerge stronger are those combining operational discipline with forward-thinking financing strategies.
Ready to navigate today’s capital markets with confidence? Connect with our team for tailored guidance and a proactive refinancing strategy designed around your goals.